Greetings and welcome to the TDS and U.S. Cellular Third Quarter Operating Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jane McCahon, Vice President and Corporate Relations for TDS. Thank you, Ms. McCahon. You may begin.

Jane W. McCahon

Thank you, Christine, and good morning everyone, and thank you for joining us. I wanted to make you all aware, a quarterly conference call presentation we have prepared to accompany our comments this morning, which you can find on the Investor Relations pages of the TDS and U.S. Cellular website.

With me today and offering prepared comments are from TDS, Kenneth R. Meyers, Executive Vice President and CFO; Joseph Hanley, Vice President, Technology, Planning, and Service; from U.S. Cellular, Mary Dillon, President and CEO; Steve Campbell, Executive Vice President and CFO; and from TDS Telecomm, Vicki Villacrez, VP Finance and CFO.

This call is being simultaneously webcast on the Investor Relations sections of both the TDS and U.S. Cellular websites. Please see the websites for slides referred to on this call including non-GAAP reconciliations.

The information set forth in the presentation and discussed during this call contains statements about expected future events and financial results that are forward-looking and subject to risks and uncertainties. Please review the Safe Harbor paragraphs in our release and more extended version that will be included in our SEC filings.

Shortly, after we’ve released our earnings results this morning and before this call, TDS and U.S. Cellular filed SEC Form 8-K current reports, including the press releases we issued this morning. Both companies plan to file their SEC’s Form 10-Q reports next week.

Between now and year-end we will be attending three conferences, all being held in New York. The Wells Fargo conference is in November and the JPMorgan and UBS conferences are in December. If you’d like meet with us at either of those conferences, please let me know, and we’ll try to accommodate you as well possible.

Please keep in mind that TDS has an open-door policy, so if you are in the Chicago area and would like to meet members of management from the TDS corporate, U.S. Cellular or TDS Telecomm, the IR team will try to accommodate you if calendars permit.

And with that, I’ll turn the call over to Ken Meyers.

Kenneth R. Meyers

Thank you, Jane. Good morning. I’ve a few comments before turning the call over to the rest of the team. First, the financial results for both our businesses were solid with TDS’ consolidated operating revenues and profitably showing improvement.

There was an unusual item in the quarter with TDS recording a $12.7 million net gain related to its acquisition out of bankruptcy, while the 63% interest in the Wisconsin based wireless provider. I’ve pointed out since historically, one would not expect a gain in an acquisition, but here we have one.

Also, you will note, there are two additional pages attached to the press releases for both the TDS and U.S. Cellular detailing some non-material corrections to prior financials. These errors related to accounting for asset retirement obligations once the amounts are immaterial, we will revise prior periods from the third quarter 10-Q and future filings in accordance with the applicable literature.

To update you on the share consolidation, the TDS Board of Directors is currently considering potential changes to our share consolidation proposal and anticipates completing this review process in the near future. Management and the TDS Board of Directors continue to believe that the share consolidation is in the best interest of all TDS shareowners. It will simplify TDS’ capital structure, improve market liquidity and provide greater financial flexibility. Because of the ongoing work in this project, we did not repurchase any stock in the quarter.

We ended the quarter with a strong balance sheet and ample liquidity. Over the past few quarters we have termed out our debt maturities with no unfunded pension liabilities, all in all this provides us with a strong financial platform to support our businesses going forward.

Now, I’d like to turn the call over to Joe Hanley. Joe?

Joseph R. Hanley

Thanks, Ken. As we turn to the regulatory areas shown on slide four, the most significant development and it affects both businesses in the FCC’s recent action on universal service and intercarrier compensation. We support the FCC’s goal to modernize and evolve USF and ICC and we continue to urge the FCC to do so in a way that will enable world carriers to deliver broadband services, both fixed and mobile. They’re affordable and comparable to those in urban areas.

On October 27, the FCC adopted an order and a further Notice of Proposed Rulemaking. The full text of the order and the further notice expected to be 500 pages in length, has not been released yet. The FCC has released an executive summary, which provides the basis for our high level analysis at this point. Also a number of important issues will be taken up in the further notice, which means that some key decisions have been deferred and here is what we know.

On the wireless side, the FCC has established a dedicated mobility fund deployed in two phases. Phase I is a one-time distribution of $300 million expected next year. Phase II will provide $500 million per year beginning in 2013 as the fund is drawn on line, the FCC will step down legacy support for wireless carriers, and raise a 20% per year beginning July of 2012.

Further reductions in legacy support will continue annually with the legacy funds going to zero in July 2016. An important qualifier however, even if the FCC for some reason is unable to put the $500 million dollar ongoing mobility fund in place by June of 2014, the step down of stocks at 60% of the 2011 level.

So what are the impacts to U.S. Cellular? U.S. Cellular currently draws approximately $160 million per year in universal service high cost support, which we refer to in our financial statements as ETC revenues and which represents taxable revenue to the company.

By record actually ETC revenues will begin stepping down in July, 2012. One potential source of upside; however is the new mobility funds. The size of the U.S. Cellular opportunity will depend on how the FCC works out the details on the fund, and also which other carriers choose to participate. The new fund does carry new obligations and companies including U.S. Cellular mainly the costs and benefits of participating differently.

Also as I mentioned earlier, the pause in step down provides a backstop, if the FCC doesn’t put the fund in place. Another potential upside for the U.S. Cellular is the phase down and eventual elimination of intercarrier compensation an expense to U.S. Cellular and other wireless carriers that that currently cost U.S. cellular approximately $60 million to $70 million per year. The FCC is mandating reductions in access rates and ultimately elimination of access charges altogether, and I’ll refer to bill and keep.

While some rate reductions began in the near term the full migration to bill and keep is a long-term process. As a result, the timing for full realization of this benefit is difficult to predict right now. But using longer transition period should occur over roughly a 10-year period.

Further it is unclear whether the U.S. Cellular or other wireless carriers would actually realize this benefit, or whether it would be competed away in the form of reduced pricing to customers.

Turning to TDS Telecom on Slide 5, as a rate of return wireline provider, there are more moving parts and more questions to be answered in the further Notice of Proposed Rulemaking. We really need the full text of the order, and resolution of the issues tied up in the further notice to have a complete picture.

To start with though, the access rate reductions, which benefit U.S. Cellular take some revenues away from TDS Telecom. The FCC is providing an opportunity for much of that loss in the early years to be recovered through the new Connect America Fund and through new end user charges.

Moreover, as I noted earlier, there is an extend transition period with the longest adjustment period being applied to rate of return carriers like TDS Telecom. On the truth in billing funds, the FCC’s efforts to curtail or eliminate random traffic and access stimulation should provide for a fairer system with more predictable costs and revenues for all carriers. With all of this said, the SEC is also modifying some parameters in the existing USF programs, and they proposed a phase out for safety net additive fund, which will have some impact on TDS.

Finally, the FCC will be taking a look at the interstate authorized rate of return, something that gets revisited from time-to-time. TDS Telecom is a rate of return carrier, so of course an adjustment in this rate would have some impact.

Currently, under all of the USF programs, TDS Telecom receives approximately $90 million annually. As I noted earlier, there are many components to this support and the timeframe for transition and opportunity for recovery are not fully notable at this time. With that said, given what we do now, we would expect the overall long-term impact on TDS Telecom to be moderate.

So to summarize the impacts of the FCC actions, clearly, some legacy support will go away offsetting that will be opportunities to the access the new Connect America and Connect America Mobility Funds. The net impact will depend on the details of how these funds are setup, and who participates in them. The outcomes may also depend on of course as portions of the order may be challenged possibly on multiple fronts. In many case, our companies will be active in the continuing rulemaking process and we’ll be determining how to maximize the opportunities available to us.

The Universal Service has been a critical element enabling U.S. Cellular and TDS Telecom to provide great service to their rural customers. And they will continue to play that vital role even in the phase of significant change.

Before leaving the regulatory area, I want to touch briefly on one other issue. Congress has been considering spectrum legislation for sometime. In the past few months this issue has become part of a larger agenda of the so-called Super Committee that emerged from debt ceiling crisis.

We remain hopeful that spectrum legislation will be adopted that will open up a new pipeline of spectrum for use by wireless carriers. This is an issue where there is broad agreement among wireless carriers and we are continuing to work with lawmakers, the FCC and our industry associations to secure spectrum opportunities for the future.

And now I will turn the call over to Mary Dillon. Mary?

Mary N. Dillon

Thanks, Joe, and good morning everyone. I will begin our prepared comments with an overview of the quarter and Steve will follow with review of our financial and operating results.

So turning to slide seven, as it’s been the case of the past few quarters, our results were mixed. Key highlights include ARPU continued decline of smartphone penetration increased to 26% of our postpaid base. Migrations to our Belief Plans continued with customers choosing more data packages leading to higher ARPU. We now have nearly 2.8 million customers on those plans.

Postpaid churn improved slightly, it’s important to note that as competitive as this industry is, this is the seventh consecutive quarter of year-over-year improvement in our postpaid churn. We are also proud to report that U.S. Cellular continues to have the strongest overall satisfaction scores in the industry as measured by leading independent research firm. This was driven by superior network and customer service satisfaction among current customers.

In the past we've experienced steady increases in overall satisfaction and would recommend scores corresponding with the launch of the Belief project.

And finally, we have numerous cost reduction efforts underway across all functional areas such as vendor contract negotiations and network optimizations, which help to offset increases in areas related to smartphone and data adoption.

Subscriber results primarily grows at improved from recent quarters above and beyond normal seasonality, but remained below our expectations. Stimulating gross adds is one of our highest priorities and we are intensely focused on innovative ways to highlight our unique customer experience and offerings to the targeted customer groups.

Metrics measuring the impact of our current happiest customers in wireless advertising campaign continue to demonstrate an improvement over previous campaigns with key metrics reaching levels consistent with industry norms and that are consistently and significantly higher than earlier efforts.

This is important progress and we are confident that this along with the impact of other initiatives will translate into improved store traffic, consideration and gross adds over time. As we approach the important holiday season we are fully focused on continuing all efforts to improve our customer growth trends.

We will have our strongest device lineup ever for the holiday. High-end devices such as the highly rated Motorola Electrify, which has been very well received since launch. The LG Majestic and the HTC Hero adds are all among the best android devices on the market. The Samsung Mesmerize continues to be one of our most popular phones and will be very competitively priced as it reaches end of life while HTC Wildfire and Samsung Repp are outstanding entry level smartphones.

For the first time, we will be leveraging our rewards program in our promotional activity, offering bonus points for new customers that can be used immediately for items such as accessories or ringtones or accumulated overtime to use for faster upgrades or even a free song.

We will continue to drive strong interest in our great device lineup through aggressive offers and creative use of future credit. We recently also redesigned nearly all of our retail stores to provide a bright, sharp and more intuitive shopping experience. And we’ve been very pleased with the early results of our innovative use of social media and online sales to promote customer advocacy and referral.

And finally, we’re optimizing the productivity across our marketing and promotional spend based on concentrated efforts that deepen our consumer and analytic insights. As far as 4G LTE launch, we’re on track with network readiness for the first wave of markets before year end. As we continue to work with our OEM partners to ensure that we have 4G devices that will meet our network and customer satisfaction requirements in the latter half of the first quarter, at the same time we’ll continue to refine our listed markets that will be included in Wave II next year.

And finally, the launch of the new iPhone will keep competition for new customers as it heads us ever, and while we have the opportunity to add the iPhone to our device lineup, but terms were unacceptable from a risk and profitability standpoint and what have forced us to compromise in our commitment to offering an unparallel customer experience.

Our gameplan for the fourth quarter was develop with all these considerations thought in center. We believe, the combination of our outstanding network, our compelling lineup of cutting edge devices, superior customer service and unique product offering such as one is on contract will allow us to successfully differentiate and grow in this market.

Now Steve will review the increase in our guidelines, our guidance this quarter, raising the range of OCF consistent with our year-to-date performance, yet reflecting the uncertainly associated with the highly competitive and heavily promotional nature of the holiday selling season.

Now I focus most of my remarks this morning on our efforts to stimulate customer add, plus I hope you can see from our performance so far this year, we also remain committed to improving the bottom line at the same time.

And now, I’ll turn the call over to Steve.

Steve Campbell

Thank you, Mary, and good morning, everyone. U.S. Cellular’s results reflect the continuing challenges of the sluggish economy as well as an extremely competitive market in which carriers continue to fight for a dwindling pool of new subscribers and the cost of acquiring switchers are significant.

Retail gross additions is reflected on slide 8, we’re 284,000 down from 301,000 in the prior year quarter, but up from 226,000 in the second quarter. In the postpaid segment, there was a net loss of 34,000 customers and the decline in retail gross adds was partially offset by a slight improvement in churn.

In the prepaid segment, we had an increase of 11,000 customers. So in total we lost 23,000 retail customers in the third quarter this year compared to a higher net loss of 25,000 last year.

Our churn results are shown on slide 9, postpaid churn improved slightly to 1.55% from 1.58% last year. Remember that third quarter has historically been our highest churn quarter. We continue to add customers to our Belief Plans, 452,000 during the third quarter as customers recognize the value and exceptional service we provide. The increasing level of Family Plans now 73% of postpaid customers is also contributing to the churn improvement.

Slide 10 reflects our smartphone sales penetration growth, and the impact on postpaid ARPU. During the third quarter, we sold 356,000 smartphones, which represented 40% of total devices sold. This compares to the third quarter of 2010, when we sold about 216,000 smartphones or 24% of the total units sold. Smartphones now represent almost 26% of our postpaid subscriber base compared to 12% at the end of the third quarter of 2010.

While the cost to subsidize these devices is greater, we expect average revenue for customer will continue to benefit overtime. And you can see that in the third graph at the far right. Postpaid ARPU growth from strong smartphone sales beginning late in the fourth quarter of last year in addition to the Belief Plan migrations. Despite the overall competitive environment and the significant downward pressure on voice pricing over the past several quarters, postpaid ARPU was up 3.1% to $52.41 in the quarter, up from $50.82 a year ago.

As part of the required accounting for the Belief Plans, U.S. Cellular defers a portion of its revenues to properly account for the loyalty reward program. In the third quarter, the company deferred $10.7 million in net service revenue, which hadn’t been recognized in service revenue during the third quarter would have added approximately $0.67 to postpaid ARPU. As the reward points are redeemed or used in the future, the revenue will be recognized as either service or equipment revenues depending on how the points are actually used.

Turning to our P&L, as you can see on slide 11, service revenues for the quarter were $1.37 billion, which is an increase of $53 million or 5% from last year. Breaking that down a bit further, retail service revenues were relatively flat at $871 million.

Competition on service plan pricing over the past several quarters has continued to put downward pressure on revenues as has a loss of subscribers, but our increase in smartphone penetration and its impact on data revenues has allowed us to offset this downward pressure.

Inbound roaming revenues increased once again this quarter growing $35 million or 48% year-over-year to $108 million primarily a result of increased data roaming traffic. We expect to see continued strength in this very high margin revenue stream.

System operations expenses of $242 million were up $24 million or 11% year-over-year. This was due primarily to higher usage and roaming expenses as our customers use more data services both on and off our networks. Through September of this year, total data network usage increased over 350% from the same period last year.

Net loss on equipment for the quarter was $120 million, up $8 million from last year. We had fewer transactions as a result of fewer gross adds, but this was offset by an $8 or 7% year-over-year increase in the average loss per device sold, which reflects the shift in mix to smartphones.

Given the 65% increase in smartphones sold, we believe that we’ve done a very good job of controlling our equipment costs by better balancing of the types of devices offered and introducing lower cost, entry level smartphones into the lineup.

SG&A expenses of $442 million were down slightly year-over-year. Reductions in USF contributions, selling expenses and advertising were offset by increases due to higher spending for Belief Project phone programs, which restarted in the fourth quarter of last year.

Operating cash flow for the quarter of $234 million was up 13%, compared to last year's $207 million. Operating cash flow margin was 22.5% compared to 21%.

Below the operating income line, as shown on slide 12, total investment in other income net for the quarter totaled $11 million, including earnings of approximately $17 million related to our interest in the Los Angeles partnership.

Net income attributable to U.S. Cellular shareholders totaled $62.1 million or $0.73 per diluted share versus $38.3 million or $0.44 per share diluted share in 2010. The increase was driven by higher operating income. The tax rate for the third quarter of this year was 38.4% compared to 36.7% last year.

And we generated cash flow from operating activities of $354 million, compared to $180 million last year and net of capital expenditures of $248 million, free cash flow of $106 million, up substantially from $56 million in 2010. As Ken said earlier, we ended the quarter with a very strong balance sheet and ample liquidity.

Our guidance for the full year of 2011 is contained in today's press release and is shown on slide 13. The guidance for service revenues, depreciation and capital expenditure remain unchanged. However, we increase the ranges for operating income and adjusted operating income before depreciation and amortization up by $20 million on both ends consistent with our year-to-date results.

And now I'll turn the discussion over to Vicki Villacrez. Vicki?

Vicki L. Villacrez

Thank you, Steve, and good morning everyone. As shown on slide 15, I'm pleased to report TDS Telecom’s third quarter performance; was highlighted by the continued growth in ILEC data revenues including the effects of hosted and managed service acquisitions, also the ongoing initiatives to stabilize traditional wireline revenues and our continued cost control efforts.

As you can see on slide 16, revenues for Telecom’s combined operations including hosted and managed services were up 4.3% from last year. ILEC revenue grew 6.9% with HMS acquisitions in growth and high speed data more than offsetting declines in voice and network access revenues. CLEC revenues declined 4.3% as commercial revenues stayed flat and the number of CLEC residential customers declined due to the company’s decision to no longer target residential customers.

Turning to slide 17, ILEC data revenues increased 48% in the third quarter driven by our acquisitions of VISI and TEAM and most recently OneNeck, which provide hosted and managed services and also by our high-speed data subscriber additions. High-speed data subscribers grew 6% year-on-year. We continue to attract new customers and they are taking higher speeds. The number of data subscribers taking speeds of 5 megabits or greater has nearly doubled to 55% since last year, and 17% are taking greater than 10 megabit speed.

Residential DSL penetration has advanced to 61% of primary residential lines and residential DSL ARPU remained stable at nearly $37 as migration to higher speed service offsets competitive pricing pressures.

The decline in ILEC voice revenues was driven by the continued trend in physical access line loss as you can see on slide 18. Line loss was 5.2%. Our star voice packages continue to help us mitigate line loss.

At September, we had 197,100 customers on these plans, which are 55% of our residential customer base, up from 42% at this time last year. As a result of our success was selling voice packages we’ve seen an improvement in residential voice ARPU.

On slide 19, we continue to emphasize our triple play bundles: voice, data and video, with video offered primarily through our partner Dish Network. We added 2,600 net triple play subscribers in the quarter, bringing our penetration of customers to 28%.

We know the importance of bundling and reducing churn. Churn, on our triple play customers, is very low at roughly 0.5% per month. We have had measurable success with our bundled offerings with 66% of our residential customers on a double or triple play bundle, up from 61% last year.

In the commercial segment slide 20, we continue to lead with our hosted IP service we call Managed IP. For Telecom’s combined operations we now have 39,400 stations installed, an increase of 12% sequentially and 68% more this time last year.

Turning to the P&L on slide 21, consolidated cash expenses were up 4.6% for the period. ILEC cash expenses increased 8.3% with HMS acquisitions. A discrete item reported in 2011 for the refund of prior period, prior year regulatory contributions decreased expense $2.4 million, a 4% decrease in CLEC expenses is inline with fewer residential customer.

We have maintained our focus on cost control and continue to seek greater efficiencies throughout our organization. All in, operating cash flow for the quarter increased to $71.2 million from $68.6 million in 2010.

As you know, on July 1, we continue to expand into the hosted and managed services arena. Slide 22, with the acquisition of OneNeck IT Services Corporation, a premier provider of hosted application management and managed IT hosting services to middle market businesses.

Our strategy is to have a robust suite of HMS offerings, which will enable us to leverage the data center assets recently acquired with VISI and TEAM. This is an exciting complement to our business as we move further into the rapidly growing hosted and managed services area.

Additionally, we continue to evaluate acquisition opportunities, both in managed services, as well as in our more traditional ILEC markets.

And finally slide 23, let me note that we are maintaining our previous guidance as shown in the press release.

I will now turn the call back to Jane McCahon.

Jane W. McCahon

Thanks, Vicki. We’ve asked Alan Ferber, our Executive Vice President and Chief Strategy and Brand Officer at U.S. Cellular to join us for the Q&A. And Christine, we’d like now to open the lines for questions.

Question-and-Answer Session

Operator

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions) Thank you. Our first question is from Phil Cusick with JPMorgan. Please proceed with your question.

Philip Cusick – JPMorgan

Hi, thanks. I think I heard you say that it’s too expensive and you’re going to choose to not sell it, is that fair?

Mary N. Dillon

Hi, Phil. This is Mary. Yeah, what we said is that, we have the option to carry. We decided that it didn’t make sense for our business economically. And so we’ll focus on really playing to our strength, and feel that we’re at a competitive position.

Philip Cusick – JPMorgan

I don’t blame you. Given the competition out there, should we look CPGA sort of up in the fourth quarter despite a higher typical gross add mix as you’re trying to fight back against that incremental competition?

Alan Ferber

Phil, this is Alan Ferber. We don’t expect that, and we expect to be competitive in the fourth quarter. We’re very pleased with our overall device lineup. We do expect to sell more smartphones or we don’t expect any meaningful increase in the CPGA.

Philip Cusick – JPMorgan

Okay. A couple of other things, prepaid was good this quarter despite sort of a typical seasonal weakness. Is there a sort of reemphasizing there, and should we look for that to accelerate in the fourth quarter?

Mary N. Dillon

Phil, our focus in our business is largely postpaid, but we were pleased with our prepaid results as well, because it did reflect some enhancements in the marketplace. We had a smartphone, a couple of different price plans. But it will continue to be the smaller part of our focus. We’re really focused on the postpaid side of the business.

Philip Cusick – JPMorgan

Okay. G&A in the wireless business dropped pretty dramatically sequentially, is something changing, and that the new run rate?

Steve Campbell

Phil, I think there is a couple of things there. I wouldn’t say a new run rate necessarily, but the USF contribution number was down a little bit in the quarter, also we’ve been running good results on bad debt expense. So we’ve seen a little bit of improvement there, but I think if you look at the guidance for the year, you kind of see where we’re seeing the year come out. So I wouldn’t be projecting a significantly different run rate on G&A at this point.

Philip Cusick – JPMorgan

Okay. And then last, I’m not sure what you can say, but can you give us an update for what you can on the TDS and special share situation? Thank you.

Kenneth R. Meyers

Hi Phil, it’s Ken. Not a lot, I can’t say, except what I just did, and that is, we did publicly announce that the Board was considering making adjustments to the current proposal. Working on that, we’d hope to – we have something done in the near future, and we think it’s the right thing to do. Within those four walls, I could say it about five different ways, but that’s about all I can say about it right now.

Philip Cusick – JPMorgan

Thanks, Ken.

Operator

Our next question comes from the line of Steve Velgot with Susquehanna. Please proceed with your question.

Stephen Velgot – Susquehanna International Group

Hi. I had a question just concerning the current ownership structure of U.S. Cellular within TDS, and the question is really whether there is anything that would prevent the company from one day pursuing a tax free separation of U.S. Cellular, and of particular note is just how the valuation of TDS is so depressed in the current market that it seems very apparent that the Board could create a lot of value by pursuing a tax re-separation?

Kenneth R. Meyers

Hi, Steve, it is Ken Meyers. We’re aiming to prevent it, I don’t – from a legal standpoint or a tax standpoint, I’m not aware of anything that would prevent it, except that strategically we think that the company is stronger, having both the wireline and wireless operation together, it gives us some strength especially on the credit side, there are some services that we share. So nothing prevents us to do it, it is simply not part of the strategy currently.

Stephen Velgot – Susquehanna International Group

Okay. And then, just a follow-up there, I know that the rationale for the share class collapse was that, basically you’re providing increased liquidity in a simpler structure, but also that you don’t in effect have an acquisition currency with the best shares trading at a discount to TDS. And that, that potentially by collapsing the share classes you would have an acquisition currency, it’s just that, with TDS trading, where it trades, I think that line of reasoning, it’s a bit off. And I’m wondering, are you talking about some point in the distant future where TDS may have a better valuation in the stock market, or when do you envision potentially having an acquisition currency. If you did get the share collapse accomplished?

Steve Campbell

I think those are two different questions. One is, I think strategically a company’s capital structure has to have fully valued acquisitions currency. Once you get the fully valued, there is two different issues right, there’s one that we have a discount as between the two, which is strictly is a liquidity driven of that. Separately there may be other matters that affect valuation, I think we are working on one of them at the time right here.

Stephen Velgot – Susquehanna International Group

Okay. Thank you.

Operator

Our next question comes from the line of Simon Flannery with Morgan Stanley. Please proceed with your question.

Simon Flannery – Morgan Stanley

Thanks a lot. I think on LTE rollout, I think in the past you’ve said your initial rollout would be to that 25% of the footprint, and I assume that's what we’re going to see here in the next couple of months, perhaps you could update us on that. And how are you thinking about the rest of your footprint and the timeline there?

And then on the good roaming numbers, I wanted to understand what you see on seasonality around that, and also the Sprint has been talking with Network Vision about their ability to substantially reduce their roaming bill over time. Do you see that as a risk? Thanks.

Mary N. Dillon

Simon, first I will take the LTE question, yes, you are right, that is our current gameplan, by year end we’ll have LTE network rolled out to about 25% of our customers, we’re well on track for that and that we would – towards the end of the first quarter we are launching LTE devices to our customers. Operationally we’re in the process right now to start seeing the remaining market and timeframe and when we've launched, the markets that were absolutely planning to continue on the path of LTE for our entire footprint. It's just a matter of pacing that and making sure that we look at which markets make the most sense to roll into next. So we’ll get more detail on that soon.

Steve Campbell

Simon, this is Steve, on the roaming question. Definitely there is some seasonality, third quarter is a strong quarter for roaming, that said, we expect to, as we said in the prepared comments, expect to see a nice strong stream in roaming continuing. I think due to some seasonality, fourth quarter maybe down a bit, but I think it will still be up nicely year-over-year driven by data usage. As far as the Sprint issue is concerned, Sprint is an important roaming partner for us, but that is not something we arrive – let me say first of all, it’s not a major part of our revenue, although it is substantial. And as you these agreements are [taper] pace, so it’s a little – there is some uncertainty, a little hard to predict that, but at least in the near term for the foreseeable future, we expect to see Sprint being strong roaming partner for us.

Simon Flannery – Morgan Stanley

All right. That’s helpful. Thank you.

Operator

Our next question comes from the line of Ric Prentiss with Raymond James. Please proceed with your question.

Ric Prentiss – Raymond James

All right. Sort of go back to the first slide where you provide some of the details on the USF, ETC changes. Just want to make sure, thinking about it correctly on the Phase I and the Phase II in the step down, you mention that you are running kind of $116 million a year on ETC, so is the thought that, the second half ’12 we should see that come down 20%?

Steve Campbell

So the FCC’s plans are to freeze a set of baseline – steady area level based on year-end 2011, I think we would expect within that context, the revenues go down by 20% and in the middle of the...

Ric Prentiss – Raymond James

Is that again?

Alan Ferber

Beginning mid-year.

Ric Prentiss – Raymond James

Mid-year.

Alan Ferber

So it would be roughly 10% of a normalized number so if you are working of $150 million to $160 million you would be talking about an impact for all of next year.

Steve Campbell

Up 10% of that.

Ric Prentiss – Raymond James

Right. And I’m looking into ’13, you’d pickup the other 10%, then in second half’13 you get another step starting down?

Steve Campbell

That’s correct.

Ric Prentiss – Raymond James

And then the one-time payments, how do you think that’s going to work out?

Steve Campbell

So the FCC is planning on a $300 million fund to be distributed using a reverse auction, it will be targeted to census flocks that are currently viewed as unserved. And that’s about as much as we know pending the – seeing the details in the order and also the way an auction notice would play out.

Ric Prentiss – Raymond James

Okay. And then on the 4G, devices for 4G late first quarter, I think as well I just heard, when do you think voice over LTE or VoLGA device will become available. And as you think about the cost curve on those 4G devices compared to an iPhone, what you are thinking?

Alan Ferber

This is Alan. In terms of voice over LTE, I think almost too early to tell it’s, we don’t believe it’s going to be 2012 or going to be 2013 at the earliest and probably – probably landed on that in terms of high quality phones. In terms of the cost of the 4G LTE devices, our current belief is, it would be less than the iPhone.

Ric Prentiss – Raymond James

Okay. And then final question on the paired pricing. Can you update us as far as what you guys are doing as far as, we are seeing good smartphone sales, you’re seeing ARPU go up. How are you managing the network?

Steve Campbell

Yeah, so there’s really a couple questions there. Number of things we’ve put into place on the network side and on the handset side, in terms of compression and WiFi offload, that’s helping us manage overall data growth. Obviously, LTE is a big piece of that as well. The last piece is, a pricing piece and we still plan to introduce pure data pricing in the first half of next year that will not only help us on the monetizing the data growth, but we believe also in combination with lower cost smartphones will allow more customers to upgrade out of their feature phones into their very first smartphone.

Ric Prentiss – Raymond James

Well, I meant actually – have you given us what percent of your base upgraded in the quarter, speaking of which?

Steve Campbell

It was just under 11%.

Ric Prentiss – Raymond James

Great. Thanks.

Operator

Your next question comes from the line of Robert Dezego with Suntrust Robinson Humphrey. Please proceed with your question.

Robert Dezego – Suntrust Robinson Humphrey

Hi, yes, I just want to go back to the iPhone for a second, and I just follow-up here. Is the thought that it’s the cost of the actual handset, or is there more of a concern with the network strains and the spectrum that you have, if you’re adding all these subscribers that are using this kind of data. I’m wondering kind of what the, if you could talk a little bit about the decisions to not take that try and take that phone?

Mary N. Dillon

I am not able to discuss many of the details, I will just say that overall, the decisions from our business, we believe it’s right. To play our offence and play our game and so we have a very competitive line up of devices that we think make sense for our customers and make sense for our business.

Robert Dezego – Suntrust Robinson Humphrey

Okay. And then a follow-up is, your churn is obviously still pretty impressive if you are on the postpaid side. With the lack of growth that’s coming in the door, can you talk about what the reason is for some of the churn that you're seeing, are the Family Plans reducing that churn. Are you still seeing a lot of Family Plans churn come out of the base? And then if maybe you could talk about what your peers are really doing, do you think that are allowing to still take share, what are the biggest competitive threats that you are seeing?

Mary N. Dillon

So I will start with churn, which we are pleased with our churn numbers and we’re obviously going to continue to focus on that, and I think that starts with keeping our customers very, very satisfied. And as I said in my prepared comments, we know that in our footprint, our customers give us the higher satisfaction rating scores whether it’s about network quality or customer satisfaction and/or customer service. And that says that, our customers are happy, our job is to keep them even happier as we go forward. But also continue to target new customers obviously, getting more gross adds is a key priority for us.

So leveraging our great network, our customer service, but I say enhancing what we have in the marketplace with a more competitive device line up, very differentiated loyalty programs to the Belief Project and we believe those things combined with innovative break through kinds of use of marketing tools, social media and better advertising. We will continue to attract new customers, so it’s really a combination of, that is keeping our current customer satisfied to keep that churn low and lower, but also it’s a very competitive marketplace, so breaking through that clutter isn’t easy, but we’re focused, we think we can do that.

Robert Dezego – Suntrust Robinson Humphrey

And if you’re talking about what your peers are doing, I think to really, they are taking share?

Mary N. Dillon

No, I think it’s just a really, how competitive this marketplace, so there is a lot of spending, there is a lot of competition on pricing device and everybody’s plan is slightly different, but I think we are all playing it that way and our approach U.S. Cellular, so really focus on customer experience and customers loyalty to differentiate within that within the pack.

Robert Dezego – Suntrust Robinson Humphrey

Okay. And then a final question is, for this for the postpaid business, do you see a trajectory to get a positive adds at some point in the future or do you think you run this business continue to see kind of the subscriber account creep down, but getting the higher ARPU and getting a better quality, basically running a smaller subscriber business, but a higher quality subscriber business.

Mary N. Dillon

I could tell you, we are absolutely a 100% focused on subscriber growth. And we are going to continue to focus on that and use tools in our toolkit to achieve that overtime.

Robert Dezego – Suntrust Robinson Humphrey

Do you see a trajectory to get there?

Mary N. Dillon

Well, I can’t, I don’t have a crystal ball, I mean we are focused on it, we are seeing, we believe that will happen over the next several quarters and stay posted.

Robert Dezego – Suntrust Robinson Humphrey

Okay. And then finally, I guess the last question I think would be the impact of margins as you try to get subscriber base back to growth?

Steve Campbell

Well, again I’d say in the short-term you can see what we’ve got in the guidance that reflects some expansion year-over-year, we said a number of times that our longer-term goals are to deliver a return on capital, sorry return on capital that exceeds our cost of capital. The goal is to do that over the next few years that will require additional margin expansion.

Robert Dezego – Suntrust Robinson Humphrey

Okay great, well thanks for taking the questions. Best of luck.

Mary N. Dillon

Thank you.

Operator

Our next question comes from the line of James Moorman with Standard & Poor's. Please proceed with your question.

James Moorman – Standard & Poor's

Okay, hi just a follow-up on some of the earlier questions. First, where you’re talking about the subsidy for the LTE front, you said it will be less than the iPhone, but can we assume that it’s more than what you are paying on the current smartphones. And the second part of the question is you said you passed on the iPhone. Could part of that be into the stream of your CDMA network and would you consider an LTE version, if it comes out in the first half of next year.

Mary N. Dillon

Let me start with the second question first and then I will turn it over to Allen for the first question. Now we feel confident in our network progress or capacity capability that we have in our network and that was not a strong consideration and I would say in terms of the future we are always open to possibility, so I can never say never.

Alan Ferber

So in terms of the handset costs, you think about our current smartphone portfolio we have a good spread from the low end to the high end. So the average cost of a CDMA smartphone will be less initially than the LTE smartphone, which will be focused more on the high-end. Over time we expect that to ration itself down and for the LTE device portfolio it also become much more diverse.

James Moorman – Standard & Poor's

Great thanks.

Operator

Our next question comes from the line of Stephen Mead with Anchor Capital Advisors. Please proceed with your question.

Stephen Mead – Anchor Capital Advisors

Good morning. Just going back to the iPhone and you said you had 356,000 smartphone sales. And I was just curious as you look at the, but you can kind of share with us, how many of those are actually former iPhone customers coming back through a different type of phone.

Mary N. Dillon

I don’t think we have a way to measure exactly that. But what I will say is that when customers come to our stores, our front line sales associates are very well equipped to help people understand their needs and to highlight for them the various devices that we have and how they stack up against competitive devices in the marketplace. So that’s I think a good dynamic for so, I think we have (inaudible) answering that question.

Stephen Mead – Anchor Capital Advisors

Okay. And then as you look at in terms of hear the first part of the call, but as you look at the guidance on your operating income and EBITDA or the cash flow number, and if you back into sort of what that implies for the fourth quarter in terms of comparisons with last year. I was trying to get a sense of whether there are certain things that have made that comparison more difficult this year versus last year.

Alan Ferber

Well, I think, when you back into the number you certainly see that the projection for the fourth quarter is lower than either Q3 or the average, and that reflects the seasonal nature of the business with the heavily promoted fourth quarter that would be normal I think year-on-year remember that we are making substantial investments and (inaudible) programs like our new billing system and so forth. So year-on-year those expenditures would be higher in the fourth quarter against from last year. And also recognized that we did in fact raised the guidance this quarter reflecting the strong results we’ve had year-to-date.

Stephen Mead – Anchor Capital Advisors

And then in terms of the impact on CapEx of the LTE expansion, how much of the, getting to 25% coverage in the first quarter of 2012, how much of 2011 CapEx is part of that process?

Kenneth R. Meyers

This is Ken. I can’t give you the exact number. But in ’11, if you remember we raised CapEx in the first quarter when we announced our plan and ballpark the number, I’m thinking it’s something like 120 millionish, all in for this year for LTE. But I don’t have the exact number, pardon me.

Stephen Mead – Anchor Capital Advisors

It doesn’t have to be exact. I’m just trying to get a sense. And then I also was wondering in terms of the incremental cost to do that as we look into 2012 to get to much broader coverage of LTE, what that impact on CapEx might be, when you look at for the frame together your 2012 number versus your 2011 number?

Kenneth R. Meyers

Well, I think, Mary said that our expectation is that we are going to continue to roll out of LTE. We got the first 25% in the network kind of by the end of this year. And we expect that's going to be a multi-year project to continue to roll that out. The exact scope of next year’s kind of follow-on and the markets that would be included, that work isn’t completed yet. But if I think about this as being a multi-year project, I would not expect to see huge differences year-to-year.

Stephen Mead – Anchor Capital Advisors

And then when you look at sort of what you need in terms of network capacity and what it takes to get there, I’m wondering in terms of once you get the coverage of LTE, where are you in terms of capacity versus if you look at the growth of data uses and devices and stuff like that, how much capacity have you created, how much more do you need over time? I mean, is there any way to kind of comment on that?

Mary N. Dillon

The comment I would make is it certainly as we are planning our build out of LTE or even just our day-to-day management of the network, it’s always with an eye towards current needs as well as future needs. So we’re certainly modeling and predicting where that growth might go and building capacity in anticipation of that.

Stephen Mead – Anchor Capital Advisors

Yeah. Okay.

Mary N. Dillon

I mean, I think it’s more specific right now, but that’s exactly certainly we are looking at it all the time.

Stephen Mead – Anchor Capital Advisors

Well, but (inaudible) you get to the end of 2012 and realize that we’re still pretty constrained here or in terms of data pricing, both on the roaming side and your own customer base, you have to, and this is why it’s important that people can actually price based upon the usage.

Mary N. Dillon

Absolutely. Well, first of all, if you look at the metrics on our network performance today, it’s very strong. We have a very strong compelling metrics on the performance of our network today. So we don’t have that capacity issue today. As we look to the future, we expect that data growth will continue to grow obviously and as Alan mentioned earlier, we’re going to look to doing more with tiered pricing so that we can both manage on the high end of people who use a lot of data as well as open up opportunities for people who come into their first smartphone at lower end data plans. So we’re planning to do that.

Stephen Mead – Anchor Capital Advisors

Okay. I have a follow-up question. But I’ll turn the floor back.

Operator

Our next question comes from the line of Kevin Roe with Roe Equity Research. Please proceed with your question.

Kevin M. Roe – Roe Equity Research

Thank you. Good morning. Just one question on postpaid ARPU. Very nice growth in the quarter, 3%, not less than 30% of your postpaid subbase have smartphone. So it seems like you have a lot of runway to improve postpaid ARPU going forward. Is it 3% growth rate a good number near-term or do you think it could accelerate or decelerate? Any thoughts there?

Alan Ferber

This is Alan. There is obviously a lot of smartphone growth in front of us. And all of our plans anticipate that and are moving in that direction. Obviously the big unknown is what happens in the competitive environment. So I think that's a fine number to use for now.

Kevin M. Roe – Roe Equity Research

The 3% growth rate?

Alan Ferber

It’s good as any right now.

Kevin M. Roe – Roe Equity Research

Very good. Thank you.

Operator

Our next question comes from the line of (inaudible). Please proceed with your question.

Unidentified Analyst

Thank you. My question has been answered already. Thank you.

Operator

Our next question comes from the line of (inaudible). Please proceed with your question. Mr. [Matalmed], your line is live.

Operator

Our next question comes from the line of John Frank with Harbert Management. Please proceed with your question.

John Frank – Harbert Management

Hi, thank you for taking my question. Quick follow-up to previous caller’s question. Assuming the company's success on share collapse proposal, which actually helped you well because it's a shareholder friendly proposal that extends. Just regarding using equity as a M&A currency, would a negative theoretical value on the TDS shares, meaning taking the current value of TDS as the U.S. end market value, which is currently negative and has been for some time, would that valuation, would a negative valuation prevent you from using that equity in the context of M&A?

Kenneth R. Meyers

I think it would make it very difficult to use. But in a vacuum without analyzing the value what’s being bought, okay, I can’t answer the question.

John Frank – Harbert Management

Okay. And further, again I do, the company’s step to collapse the shares and again hope you do reach the vow, and I get the sense that this perhaps is the first in potentially a series of steps that the Board and management is going to take to address this valuation that we were just speaking to. I understand that there are sensitivities and an inability to speak exclusively perhaps about some of those steps. But can you offer anymore characterization or color in terms of how you view the current valuation in your equity one? And two, maybe once we get through this share collapse, at what point do you think we’ll have some more color regarding where the Board’s mind and thought process is in terms of addressing the valuation?

Steve Campbell

John, I’m in a severe box in terms of what I can say, right? We’ve got a proxy statement out there. Let me assure you that the Board is very focused on building shareholder value. We think that like you, this first step is something that is something that will benefit all shareholders and hope to complete that process and then continue to address other factors that may help improve the valuation in the future.

Hey, just one quick follow-up. Maybe also unanswerable. But with PT mobile transaction out there, can you update us as far as what your stance is as far as that transaction and then what your appetite might be in case there is any divestitures as far as if they’re regional or international?

Mary N. Dillon

Right, well, couple of things. One is, if there are any divestitures, we’ll certainly be open to considering things that might augment our geography and our market. In terms of stance on it, we are kind of neutralized, say, we some positives, we some potential negatives. But really focused on conditions that we think would need to be imposed if the merger went through, along the lines of things that would help us maintain competitiveness in the industry going forward. So roaming, handset exclusivity, interoperability with LTE and spectrum access, those kinds of items. So that's what we’ve been focused on.

Ric Prentiss – Raymond James

Thanks.

Operator

Ms. McCahon, we have reached the end of the question-and-answer session. I would now like to turn the floor back over to you for closing comments.

Jane W. McCahon

I'd like to thank everyone for their time today and look forward to speaking to you soon. Thanks.

Operator

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation. And have a wonderful day.

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